Perspectives of the Algerian Oil & Natural Gas exports’ market

Algeria is one of the top gas supplier to Europe. Its economy is heavily dependent on hydrocarbons exports, and the OPEC member has been struggling to boost production to offset the fall in oil prices.

Algeria’s new energy minister Noureddine Bouterfa has said that Sonatrach foresees an increase in its oil and gas production in the order of 30% by 2020, reported state news agency APS. “Efforts are being deployed in order to reach this objective within the targeted schedule,” he said on July 18 at Hassi Messaoud, the country’s largest oil field.

Bouterfa took over from his predecessor Salah Khebri in June 2016; the latter had said two months previously that Algerian oil and gas production would rise to 4.82mn boe/d in 2020, thanks to forecast $73.5bn of investment. But given weak oil prices and reluctant international investors, this seemed unrealistic.

On June 10, state producer Sonatrach said it would not back down in a dispute with Repsol and Total, but listed several international companies led by Eni with which it has improved cooperation.

One month into the job, Bouterfa on July 18 echoed that topic of partnerships, citing in particular the Ourhoud oil field joint venture that regroups Sonatrach, Italy’s Eni, Spain’s Cepsa and Denmark’s Maersk among others. But he risks similar criticism to Khebri if his production forecasts do not prove accurate.

Algeria’s 2015 marketed gas production was 82.5bn m³, according to a study published this May by the Oxford Institute for Energy Studies’ Ali Aissaoui who pointed to the risks of continued gas production decline, and to the possibility that rampant domestic gas demand might cut 75% off today’s 60bn m³/yr gas exports by 2030, leaving them at just 15bn m³/yr.

In 1Q 2016, BP, Statoil and Sonatrach started new production at their In Salah Southern fields. This month, APS reported official data showing that the country’s 1Q 2016 oil and gas production grew by 3.3% year-on-year, following year-on-year declines in every quarter of 2015.

According to EIA,Algeria is in the process of developing its Southwest Gas Project, which includes Reggane Nord and Timimoun, which are expected to start production three years behind schedule in 2017, and Touat, which is scheduled to come online in 2016.

The Repsol-led Reggane Nord project consists of developing six fields and is expected to reach a peak production rate of 155 Bcf/y. The Timimoun project, led by Total in partnership with Sonatrach and Cepsa, is expected to reach a peak production of 64 Bcf/y, and the Touat project is projected to reach a peak production of 155 Bcf/y.30 The Southwest Gas Project entails the construction of natural gas-gathering facilities, a natural gas treatment plant, and a pipeline to the Hassi R’Mel gas hub, called the GR5 pipeline. The planned infrastructure will connect the remote Southwest natural gas fields to the Hassi R’Mel region and allow for the commercialization of other fields in the south as well. The development and commercialization of the Ahnet natural gas project in the south will also depend on the new infrastructure.

The US competition grows as a second US LNG cargo lands in Europe as tanker docks in Spain

It is the second US LNG cargo to land in Europe after the Creole Spirit offloaded at Portugal’s Sines terminal at the end of April.

Algeria has three transcontinental export natural gas pipelines: two transport natural gas to Spain and one transports natural gas to Italy (Table 3)31. The largest pipeline, Pipeline Enrico Mattei (GEM), came online in 1983 and runs 1,025 miles from Algeria to Italy via Tunisia. GEM’s capacity is more than 1.3 Tcf/y and it is jointly owned by Sonatrach, the Tunisian government, and Eni. The Pedro Duran Farell (GPDF) pipeline started in 1996 and travels 325 miles to Spain via Morocco. GPDF’s capacity is about 390 Bcf/y. The newest pipeline, MEDGAZ, came online in 2011 and is owned by Sonatrach, Cepsa, Endesa, Iberdrola, and GDF Suez. MEDGAZ stretches 125 miles onshore and offshore, from Algeria to Spain via the Mediterranean Sea.
The Iberian peninsula is considered an “island market” with poor interconnection to the rest of Europe, so the delivery of US LNG into the region is not likely to be seen as a sign that US LNG will take hold in the wider European market.

In addition, the most important supplier of NG in Europe as Russia and Norway do not supply the Iberian market with their gas pipeline therefore will probably not be concerned from this issue.

Algeria, on the other hand, could keep a close eye on US LNG exports to Portugal and Spain.

Its exports by pipeline last year totaled around 27 Bcm, with more than half of that headed for Spain and Portugal. Portugal can account for as much as 12% of Algeria’s gas exports by pipeline and Spain some 44%. At the same time the Algerian gas flows have averaged more than double the 19 million cu m/d of 2015’s (46.4 million in 2016 so far) to Italy and and to spain are slightly up from the 38 million cu m/d comparing to 2015’s same period (40 million cu m/d in 2016 so far).